Does Amazon Really Need a $5 Billion Second HQ? Maybe.

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Does Amazon Really Need a $5 Billion Second HQ? Maybe.

PHILIPPE HUGUEN/AFP/Getty Images

Amazon announced Thursday that it plans to spend $5 billion on a second headquarters–dubbed "HQ2" somewhere outside its current home of Seattle, Washington. The company hasn't decided where HQ2 will be yet, but Amazon says it will be in North America and expects around 50,000 people will work there within 10 to 15 years. The company currently employs around 40,000 people in Seattle.

"Amazon HQ2 will be a complete headquarters for Amazon – not a satellite office," the company announcement says.

It's an audacious plan, but Amazon could well need the space. In 2010, Amazon employed only around 5,000 people in the Seattle area, so hiring another 50,000 corporate staff over the course of a decade and a half is almost conservative by comparison. Worldwide, Amazon added more than 30,000 employees during its last fiscal quarter alone. According to its earnings report, the company employed 382,400 full and part time workers around the world, including retail and warehouse staff, as of its second quarter 2017 earnings report, up 42 percent year-over-year.

But if the history of the technology industry has taught us anything, it's that plans change as fortunes change. In 1999, Cisco was on top of the world. It was the height of the dotcom bubble, and the company's networking gear was in high demand as startups, big corporations, and government agencies wired their offices for the internet revolution.

Cisco announced plans to build a 688-acre campus, enough space for 20,000 employees, in San Jose's Coyote Valley. Worried that still wouldn't be enough for the growing company, Cisco agreed to lease 3.4 million square feet of space in Fremont, California–enough for another 10,000 employees. But by mid-2001, Cisco's plans had changed. The bubble had burst. The company pulled out of the Fremont deal and sought to sublease 750,000 square feet of its existing office space. It never built the Coyote Valley campus, and the land was sold last year.

Cisco isn't the only company that's changed its mind about an expansion. In 2011, Intel, hot off a record sales year, announced plans to build a factory near Phoenix, Arizona, that would employ around 3,000 people by 2013. In 2014, however, Intel's revenue had flattened and the company delayed construction of the new factory. Now, the plans are back on the table.

Today, Amazon looks unstoppable. But remember that the company rarely turns a profit. A change in the economy, disruption from an innovative new startup, or even competition from the likes of Google and Walmart could one day slow Amazon's growth.

Meanwhile, the fate of HQ2 could depend not just on Amazon's fortunes, but on the reasons for its creation. Amazon declined to comment on why it's planning a new headquarters outside Seattle. For example, if Amazon is worried about putting all its eggs in a basket that's sitting on a fault line that's overdue for a potentially cataclysmic earthquake, there might not be anything that could talk the company out building HQ2. But some have speculated that the company might establish HQ2 in Canada or Mexico because of the Trump administration's anti-immigration policies and the President's criticism of Amazon and CEO Jeff Bezos. The 2020 election might alter the company's needs.

Likewise, if the HQ2 announcement is a ploy to extract tax breaks from the city of Seattle or state of Washington, the project be stalled if Amazon gets what it wants.

Seattle Chamber of Commerce chair-elect Heather Redman, who co-founded the venture capital firm Flying Fish, thinks Amazon is serious about the new campus. "It's not Amazon's style to bluff," she says. She thinks the move probably has more to do with Seattle's business climate. The city passed legislation in 2014 to raise minimum wage to $15 in phases, and more recently passed a city income tax on people who make more than $250,000 a year.

It's not clear that either of these decisions affected Amazon's decision to expand outside of Seattle. The minimum wage would have more of an effect on its warehouse workers than its corporate staff. Also, Washington is one of only seven states that doesn't have an income tax, meaning employees could end up paying more in income tax at HQ2, depending on where it lands. But Redman says many people in Seattle resent the company despite the large number of jobs it has created. She thinks the announcement could be a wakeup call that changes the city's attitude towards the company and is not ready to give up on keeping those jobs in Seattle.

It could also be that the company has simply grown as much as it can in Seattle. According to the Seattle Times, Amazon now occupies 19 percent of the city's prime office space—about as much as the city's next 40 biggest employers combined. If Amazon's forecasts prove more accurate than Cisco's and Intel's prognostications, it may need to go elsewhere for space and talent.